advantages are market size, proximity to customers, infrastructure, investment
incentives, taxation, ease of divestment, and labor costs (e.g. Dunning 1993 ; Casson
and Buckley 1998 ).
Cast within the business strategy literature, ‘ownership’ advantages can be
translated into ‘competitive’ advantages, which can be exploited by MNCs stra-
tegically positioning themselves in their global markets (i.e. via cost leadership vs.
diVerentiation, defensive vs. oVensive, and narrower vs. wider scope positioning).
Regardless of the primary market-positioning objectives underlying FDI decisions,
MNCs seeking to act rationally will take into account the unit labor cost diVerences
across alternative host locations. Several recent studies yield strong and highly
consistent evidence that MNCs typically (but not always) invest less than they
would otherwise in those countries in which IR systems are characterized by factors
viewed by employers as driving up unit labor costs; either directly or indirectly by
restricting the freedom of employers to manage human resources (e.g. Cooke and
Noble 1998 ; Cooke 2001 a; Bognanno et al. 2005 ).
More speciWcally, the evidence generally shows that, all else the same, MNCs
invest less in countries with lower average levels of education and higher average
hourly compensation costs. ThisWnding is consistent with the expectation that
MNCs invest more in countries in which unit labor costs, not just hourly com-
pensation costs, are lower as a result of productivity diVerences. MNCs also invest
less in countries that place more restrictive workplace policies and regulations on
management’s discretion to direct the workplace (e.g. in regard to lay-oVs and the
imposition of works councils). Furthermore, MNCs invest less than they would
otherwise in countries in which collective bargaining contexts would be perceived
as more constraining. Here, weWnd that countries having higher levels of union
penetration and in which contract negotiation structures are centralized beyond
the company-wide level (mainly at the industry-wide level) attract less FDI than
they would otherwise. Finally, some evidence indicates that FDI is lower in
countries with records of greater labor–management conXict, as evidenced by
lost days of work due to work stoppages.
In summary, it appears that MNCs generally take into account HR consider-
ations in deciding where and how much to invest across alternative host locations.
Although the statistical estimates in these studies indicate that IR system factors
have substantial eVects on FDI decisions, these studies do not provide much insight
into actual challenges faced when MNCs attempt to introduce new HRM policies
and practices to their foreign subsidiaries. Yet, to the extent that MNCsWnd it more
or less costly to implement preferred HRM policies and practices in some foreign
locations than in others (treated as the ‘ease in exploiting’ ownership advantages in
the economics literature), MNCs seeking to act rationally will invest more in those
locations in which the local capacity and receptivity to organizational change are
greater.
global human resource strategy 493